Internationalisation process of firms: theories; motives and influencing factors

Résumé du document

In today's world, "globalization" is a very commonly used term but there are many ambiguities with respect to its definition, when the phenomena was born and why is it so important for companies? Although this term is imprecise, literature enables us to define it using two very distinct schools of thought. The first phenomenon is called "internationalization" which portrays the growing interdependence among national markets for goods, services and factors which in turn has resulted in the liberalization of trade among nations. The second concept is associated with two aspects namely Foreign Direct Investment (FDI) and the Multinational Enterprises (MNE). In their annual World Investment Report, UNCTAD, the term "globalization" was used by the sense of integrated production activities and strategies adopted by the multinational enterprises. MNE are considered as agents of production for activities such as integration strategies, intra-firm trade, outsourcing and offshore production. This chapter concentrates mostly on trade and investment liberalization. The working definition used here is a marked increase in the movement across national boundaries of goods/services, investment, people and information.

Extraits

[...] They are a flexible form of business arrangement and enable the sharing of cost. (Ibid) Advantages A joint venture has numerous advantages. Firstly, a firm can benefit from the local partner knowledge of competitive conditions in the host country, culture, language, business and the political system. Sometimes, for political reasons, the joint venture is the only effective mode of entry (Hill 1997). Joint venture means a sharing of risk of failure, cost of administration and allows firms to expand into a many foreign markets simultaneous for low capital cost. [...]

[...] Advantages The main advantage is they provide great economic returns/earnings from that asset and this strategy is particularly useful in cases where FDI is limited by host-government regulations. Finally a turnkey strategy makes sense when in a country; longer-term investment might expose the company to unacceptable economic or politic risks. (Hill 1997) Disadvantages The first disadvantage is that the company will not have long term interest in the foreign country. This could be annoying for the company if that country becomes a major market. The second is that the firm that enters into a turnkey project can create a future competitor. [...]

[...] Both the degree of internationalisation of the firm as well as the internationalisation of the market influences the process. A model of four situations is presented (fig Fig.3 Internationalisation and the network model Source: Johanson and Mattson 1988 The early starter: the degree of internationalisation of both company and market is low. So the domestic company has a very low international relationship with companies abroad. In this case, the company has a little knowledge about foreign market. Then, the company should enter foreign markets following the Uppsala “step by step” model. [...]

[...] Then, the concern to “economies of scale” through mass production becomes more and more important. Indeed, producers want to minimize their cost with a cheap labour, standardisation. So, they start to produce in less developed countries which should offer a better competitive advantage as the production locations. Chapter II the different entry modes Companies can enter foreign markets in different ways such as exporting, use of agent or distributors, licensing and franchising, joint ventures, management contracts, contract manufacturing or direct foreign investment. [...]

[...] This is the case with countries like Finland, being a small and open economy where the markets can be found abroad. Then, growth could be obtained through internationalising the firm and capturing new market possibilities, or in the terms of Penrose, through finding new “productive opportunities. The internalisation approach Internalisation theory gives an explanation of the growth of MNE and explains the reasons for FDI decision. In brief, internalisation theory suggests that multinational enterprises set up subsidiaries to exploit technology advantages abroad instead of implementing licensing cause to difficulties to arrange with foreign firms. [...]